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An Australian federal court on Monday dealt a fresh blow to internet file-swapping with a ruling against a small Sydney-based software company that is behind one of the world’s largest music file-sharing services.

The ruling ordered Sharman Networks to filter out copyrighted material from its Kazaa Media Desktop software within months or face closure. It highlights a worldwide effort to clarify rules about internet music distribution and file-sharing.

The move comes 10 weeks after the US Supreme Court ruled against Grokster, the file-sharing operator, and found that makers of peer-to-peer (P2P) software that enables file-sharing between computers could be held liable for any copyright infringements by their users.

Last month, a Korean court required Soribada, a P2P service, to halt unauthorised file-swapping on its network or to shut down.

In his judgment, Murray Wilcox, Australian federal court judge, said: “Both the user who makes the file available and the user who downloads a copy infringes the owner’s copyright.”

Nearly 320m people are estimated to have downloaded Kazaa, which enables internet users to swap film, music and other digital information over the web.

However, Judge Wilcox did not hand an outright victory to copyright holders. He said Sharman should stop new users from trading copyrighted material via Kazaa software and exert “maximum pressure” on existing users to upgrade to a new, filtered version that would block copyright material, but that Kazaa should not be shut down.

Any changes to Kazaa should not come at the “unacceptable cost of preventing the sharing of files which do not infringe the applicants’ copyright,” he said.

Music industry representatives said the ruling could ultimately pave the way for copyright holders to seek billions of dollars in damages.

Australian courts lack jurisdiction overseas but copyright lawyers said the Kazaa judgment would influence copyright infringement cases worldwide.

“It is a resounding signal to other unauthorised file-swapping networks to adapt their systems and go legitimate, now,” said John Kennedy, chairman and chief executive of IFPI, the London-based recording industry association.

In a statement after the verdict, Sharman said it would appeal. In a statement after the verdict, Sharman said it would appeal against the ruling and noted: “Both parties have had a win, although neither side has had a complete victory.”

In the trial, record industry representatives claimed that in any given month, 270m-3bn files were exchanged via the FastTrack swapping system used by Kazaa and others.

Judge Wilcox ordered Sharman and five other defendants to pay damages and 90 per cent of the costs incurred by Universal Music Australia, which brought the case.

Copyright The Financial Times Limited 2017. All rights reserved.
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